If they go too far in this direction it will probably hurt them. Users don't want a search engine that puts its own, lesser quality, sites at the top.
It'd be amazing if Google spun off Google Search as its own company. The business is so narrow and successful that it could probably survive for 50 years without any fundamental change. Instead, it's being distorted and weighed down by a sprawling organization that's desperate to create new businesses, and compromising the search product to do so.
Microsoft went to great (and often illegal?) lengths to prevent customers from considering or being able to make use of alternatives. Consumers had a great deal of lock in -- a user of a Windows computer often had software that would only be compatible with a new computer that also ran Windows, for instance. And Microsoft was able to use that leverage to acquire and keep users of its browser software.
Google doesn't seem to be following that pattern, as far as I can see. Users can (and do) make use of Google services from non-Google platforms. Google makes its products available to people using browsers other than Chrome, phones other than Android, etc. Performing a Google search requires no account.
I use Google for a lot of services, and I certainly don't want a lesser quality site at the top of my search results. I haven't seen that, either. I _have_ seen Google augment its already stellar services with new features that enhance my experience, and I ignore those things that haven't. If I ever find myself unable to ignore or disable things, I'll probably switch to another search engine. Which I'm free to do, since my use of the internet isn't controlled by Google!
You make some assertions that I'm just not seeing the evidence for, but I'd like to hear more about them. It seems uncontroversial that users don't want lesser quality search results. Where is the evidence that they are seeing them? And if they are, why aren't they switching to a different search engine? Why should Google have to separate their "core" search business from their other ventures right at a time when the expanded product (things like Google Now) is proving just how revolutionary a next-generation, personalized, multi-source search agent can be?
Search "headphones" on Google and you'll see the massive ad spot taken up by Google Shopping. They've done similar things with the way they integrate Google Local/Zagat into local business searches.
That's the equivalent of the kind of deep integration Microsoft did with IE. IE wasn't just another application in Windows, it was built-in and inseparable. The same is true of Google's products, they're automatically highlighted, and at the top of, every relevant query.
It seems pretty obviously anti-competitive to me. I think their only defense is that they claim not to be a monopoly, but no one who's on the receiving end of Google traffic can agree with that claim.
I actually think they should spin off Google Search for their own sake. To maintain the integrity and long-term quality of the product.
What's wrong with that? If I'm searching for headphones, why would I want to be taken to another search engine that indexes headphones? I want to be see the best prices and be taken directly to the websites that actually sell headphones.
There's nothing inherently wrong with a monopoly. If you think Google is a monopoly, it's only because they provide the best results. Switching to a different search engine is so unbelievably easy, I don't see how you could ever claim Google's monopoly is harmful to consumers.
This is the difference, or the similarity however you look at it, between Google and Microsoft. You claim that the barriers Microsoft put up to prevent users from switching were significant, but Google's aren't. I disagree. In the literal sense no one was locked in with Windows and users were free to install other browsers or even switch to Linux or Mac.
The complaint was that Microsoft was making it difficult for the average user to do so. That's the same complaint these companies have about Google. For you it might be an easy task to download your data from Gmail or Chrome but I'm sure for the majority of users switching search engines is just as obscure as switching browsers.
I'm still not quite convinced about the Microsoft/Google parallels, though. I just spend some time reviewing the history of Microsoft litigation and behaviors in this respect. While admittedly no one was literally locked in with Windows, Microsoft had a long history of establishing artificial barriers to prevent people from leaving Microsoft products while simultaneously using that position to launch new products/services and drive competitors out of business. At the risk of sounding like a Google apologist, I feel like I'm more likely to see Google make decisions that seemingly place interoperability, standards-compliance, etc. potentially above their own business needs.
Adwords is Googles firehose of money. Their other products help push that or are trying to find new ways to make money.
I think individual engineers looked at things (e.g.) Microsoft made, like Outlook, made it better, and made it free. Nobody should be surprised if the corporate go-ahead was made on the basis of undercutting Microsoft rather than driving ad revenue (at the time).